February 26, 2024

Hi everyone. Welcome to this edition of Trends Talk with ITR Economics. I’m your host, Taylor St. Germain, and we at ITR Economics are your unbiased and apolitical source of economic intelligence, and today I wanted to talk about the labor market. It’s been a while since we had an update on the labor market here on Trends Talk, and we recently revised our U.S private sector employment forecast, and I wanted to talk a little bit about what that means. Now, we upgraded our private sector employment forecast. So previously, we saw some mild negativity. It was almost flat. The growth rates were just shy of minus 1% coming in at about 0.7% when thinking about employment year over year. So previously we were thinking, well, there’ll be a little bit of softness in employment in 2024 as a result of this macroeconomic downturn. Now, there’s still going to be pockets of employment that are weaker than others because some industries will be hit harder during this industrial downturn that we’ve been forecasting for 2024.

However, we’ve continued to see strong employment numbers coming across the board, especially the consumer sectors, especially those sectors that are more tied to GDP, the service sector rather than the manufacturers or the industrials out there. So yes, upgrade in private sector employment, which means we still expect private sector employment to grow year over year, but there still will be some opportunities to get some top talent from some industries that will be hit harder in 2024. And what does this forecast revision really highlight? Well, something we’ve been talking about for a while. Like I said, this is really a mild adjustment to our forecast and we’ve already been talking about how tight this labor market is. And from our perspective, a positive employment number instead of a slightly negative one just really highlights that as we look forward to 24, 25, 26 and even beyond, this tight labor market is ultimately here to stay.

So yes, let’s take advantage of some employment that will become available in 2024 because some industries will be hit harder than others, but note that we’re going to be dealing with this tight labor market from now well into the future. Some statistics that support that is that even as we sit here today, there’s still 0.7 people for every one job opening. We simply don’t have enough people in this country to fill all of our open positions. And again, that’s not new. We talked about this three months ago when that number was 0.69 instead 0.71. So has it loosened up a little bit? I guess you could say that, but still a pretty tight labor market out there. And with the economic growth that we have planned for 25, 26 and beyond, 24 is still a great time to be hiring, to bring on new talent while we are a little bit slower so that we’re prepared for the growth that comes out in ’25 and ’26 that we’ve talked about being forecasted for quite some time.

I heard recently at a conference a CEO said, “Whoever wins labor, will win this decade,” And I think that there’s a lot of truth to that. So again, use ’24 as a time to be hiring, training, so that when we’re accelerating as an economy here in the U.S, both GDP and U.S industrial production, we will be able to handle that growth that’s coming our way. Now, I do get a lot of comments, especially lately, around the fact that we don’t have enough people in this country, but yet we do have a lot of people coming across our borders. There’s a lot of immigration into the U.S and there’s always a question that is, well, is this immigration solving some of this labor shortage? Well, if you look at a data set that we have access to, which is lawful, permanent residents immigrating to the U.S, that number on an annualized basis, on a 12 month moving total basis, is at 1.018 million as of today. We have 8.425 million open job openings.

So yes, even though there is a lot of immigration happening to the U.S, 1 million lawful immigrants is not going to solve the 8 million job openings that we still have here today. I’m not saying it’s not an important part of the equation, but it’s not the overall solution to the equation, which is why we’re also talking a lot about how to offset these tight labor conditions through automating and innovating. And again, ’24 is a great time to be doing that so that you have these systems and efficiencies in place for this growth that we have forecasted for the economy in ’25 and in ’26. The last statistic I wanted to share with you related to the labor market is where wages are currently trending. As I said, there’s a tight labor market, and with a tight labor market, we’ve seen wages generally elevated still. Now, it’s not that they’re not slowing like everything else is in the economy right now, but they’re still elevated.

If you look at a map of the U.S, the number one state in terms of year-over-year wage inflation is actually North Dakota at 7%, and the worst performer in terms of wage growth is California at a whopping 0% wage inflation. However, most of the countries within the US are between that three and about 5.5% range in terms of wage inflation. So if you’re thinking about increases that need to be passed through, a lot of our clients anecdotally are talking about that three to 5% range. I’m personally working on our wage forecast with our team internally here at ITR, so we’re going to have more information coming your way as it relates to wages over the next three years. But I wanted to give you some insight into a moment in time where we are here today and wages are still elevated, but again, it’s not all linear across the U.S. So note that it’s important to look at an individual state independently from a U.S average because there are some pretty significant differences.

So overall, it’s a tight labor market. Our upgraded forecast shows that that tight labor market is here to stay, not just here in the near term, but in the long term. But again, ’24 is a great time to be hiring with all of this economic growth that we have planned for the second half of the decade. And as I mentioned, there are still markets in ’24 that are projected to be down year over year, and there will be some labor that comes available as a result of that. So even though there’s a tight labor market, look for those markets of opportunity where you might be able to bring in some top talent, get them trained up and have them ready for the second half of this decade in which we’ll all find ourselves quite busy. I hope you found this information helpful. Please remember to like and subscribe wherever you listen to Trends Talk on your favorite podcast platforms, and I’m looking forward to talking to you on the next one. Thanks so much for joining me here today.